The true private sector in China has actually shrunk in the past 10 years. The country is testing the economic limits of a socialist dictatorship. It is reasonable to expect it will eventually come to an impasse. From the WSJ, Nov. 17, 2010:
“According to China's Ministry of Finance, assets of all state enterprises in 2008 totaled about $6 trillion, equal to 133% of annual economic output that year. By comparison, total assets of the agency that controls government enterprises in France, whose dirigiste policies give it one of the biggest state sectors among major Western economies, were €539 billion ($686 billion) in 2008, about 28% of the size of France's economy.”
http://online.wsj.com/article/SB10001424052748703514904575602731006315198.html?mod=ITP_pageone_0
Wednesday, November 17, 2010
Tuesday, November 16, 2010
Blood banks and bleeding
From today's NYT: Should the small countries let the banks go, as did Iceland?
Lincoln
“This policy of saving banks at the cost of breaking the back of entire countries is a disaster,” said Daniel Gros, director for the Center for European Policy Studies in Brussels. “Ireland is beyond fiscal plans as long as one cannot see the bottom of the losses in the banking sector,” he said. The only way to “stop the rot,” he added, “would be to let the Irish banks go under” and then use the European funds to “tide over the government until markets and the economy recover.”
"Ireland is unlikely to let its banks fail, but it has been unable to accurately forecast its banking losses — or say whether bondholders will pay part of the bill.
"Irish banking losses are estimated at up to 80 billion euros ($109 billion), depending on the forecast used, or 50 percent of the economy. As long as housing prices continue to fall, these losses cannot be capped."
Lincoln
“This policy of saving banks at the cost of breaking the back of entire countries is a disaster,” said Daniel Gros, director for the Center for European Policy Studies in Brussels. “Ireland is beyond fiscal plans as long as one cannot see the bottom of the losses in the banking sector,” he said. The only way to “stop the rot,” he added, “would be to let the Irish banks go under” and then use the European funds to “tide over the government until markets and the economy recover.”
"Ireland is unlikely to let its banks fail, but it has been unable to accurately forecast its banking losses — or say whether bondholders will pay part of the bill.
"Irish banking losses are estimated at up to 80 billion euros ($109 billion), depending on the forecast used, or 50 percent of the economy. As long as housing prices continue to fall, these losses cannot be capped."
Sunday, November 14, 2010
James Grant argues for a return to the gold standard
From today's New York Times:
"Gold is a metal made for monetary service. It is scarce (just 0.004 parts per million in the earth’s crust), pliable and easy on the eye. It has tended to hold its purchasing power over the years and centuries. You don’t consume it, as you do tin or copper. Somewhere, probably, in some coin or ingot, is the gold that adorned Cleopatra."
We will, I believe, return to the gold standard eventually. The process is already underway.
Lincoln
"Gold is a metal made for monetary service. It is scarce (just 0.004 parts per million in the earth’s crust), pliable and easy on the eye. It has tended to hold its purchasing power over the years and centuries. You don’t consume it, as you do tin or copper. Somewhere, probably, in some coin or ingot, is the gold that adorned Cleopatra."
We will, I believe, return to the gold standard eventually. The process is already underway.
Lincoln
Friday, November 12, 2010
Chinese CPI dramatically understated over last 5 years, according to Beijing think tank
People are going hungry in increasing numbers in China. Be prepared for increased social unrest. Below is a report from Reuters. Lincoln
Inflation "under-statement" sparks row in China
Thu, Nov 11 2010
By Aileen Wang and Simon Rabinovitch
BEIJING (Reuters) - With price pressures on the rise in China, a rare public spat has broken out in government circles about whether the statistics agency is suppressing the full truth of how high inflation really is.
Many Chinese have long harboured suspicions about the quality of official inflation data, saying that it does not adequately capture soaring property prices or food costs.
But criticism took a curious turn this week when the Chinese Academy of Social Sciences, a top government think-tank in Beijing, published a research article arguing that the consumer price index had been under-stated by more than 7 percent over the past five years.
The National Bureau of Statistics, which regularly defends the quality of its output, swung into action.
"Obviously, the article's conclusion does not hold any water," Sheng Laiyun, NBS spokesman, told reporters.
The think-tank report found a gap between historical inflation figures and those that can be calculated based on the supposed weights assigned to the various components of the consumer price basket.
The inference was that the NBS might have been massaging reported data by changing weightings without informing the public.
"While only publishing the sub-indices of eight categories but not releasing changes in basket weightings, there is an opportunity to adjust the CPI figure," wrote Xu Qiyuan, author of the report.
Inflation "under-statement" sparks row in China
Thu, Nov 11 2010
By Aileen Wang and Simon Rabinovitch
BEIJING (Reuters) - With price pressures on the rise in China, a rare public spat has broken out in government circles about whether the statistics agency is suppressing the full truth of how high inflation really is.
Many Chinese have long harboured suspicions about the quality of official inflation data, saying that it does not adequately capture soaring property prices or food costs.
But criticism took a curious turn this week when the Chinese Academy of Social Sciences, a top government think-tank in Beijing, published a research article arguing that the consumer price index had been under-stated by more than 7 percent over the past five years.
The National Bureau of Statistics, which regularly defends the quality of its output, swung into action.
"Obviously, the article's conclusion does not hold any water," Sheng Laiyun, NBS spokesman, told reporters.
The think-tank report found a gap between historical inflation figures and those that can be calculated based on the supposed weights assigned to the various components of the consumer price basket.
The inference was that the NBS might have been massaging reported data by changing weightings without informing the public.
"While only publishing the sub-indices of eight categories but not releasing changes in basket weightings, there is an opportunity to adjust the CPI figure," wrote Xu Qiyuan, author of the report.
Thursday, November 11, 2010
"Justice," Chinese style
Zhao Lianhai, the parent of a child killed by contaminated milk who subsequently has campaigned for stricter food safety standards, has been sentenced to two and a half years in prison for "disrupting social harmony."
The message: No matter what happens, just keep smiling.
The message: No matter what happens, just keep smiling.
US says troops will remain in Afghanistan until at least end 2014
Suddenly dropping the 2011 withdrawal date, which has become "the beginning of a transition," Gates, Clinton and Mullen say that US troops will remain in Afghanistan "at least to the end of 2014." The White House says this is not a change in policy.
Does this change in policy have any relation to the recent Republican election gains?
http://www.nytimes.com/2010/11/11/world/asia/11military.html
Does this change in policy have any relation to the recent Republican election gains?
http://www.nytimes.com/2010/11/11/world/asia/11military.html
Wednesday, November 10, 2010
The storm is coming! Take cover.
BEIJING, Nov. 9 (Xinhua) -- The United States has lost its double-A credit rating with Dagong Global Credit Rating Co., Ltd., the first domestic rating agency in China, due to its new round of quantitative easing policy.
Dagong Global on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the U.S. by one level to A+ from previous AA with "negative" outlook.
The Chinese rating agency said the downgrade reflected the U.S.'s deteriorating debt repayment capability and drastic decline of the U.S. government's intention of debt repayment.
"The serious defects in the U.S. economy will lead to long-term recession and fundamentally lower the national solvency," Dagong said in a report.
The Chinese rating agency said the Federal Reserve's new round of quantitative easing would further depreciate the U.S. dollar and was entirely counter to the interest of the creditors.
The Federal Reserve last week decided to buy 600 billion U.S. dollars of U.S. Treasury securities and other assets held by banks in a bid to inject fresh funds into the economy and bring down long-term interest rates.
"The credit crisis is far from over in the United States and the U.S. economy will be in a long-term recession," Dagong Global warned in the report, adding a weakening greenback will cripple U.S. capability to attract dollar capital reflow.
The Chinese rating agency said the Fed's move would not substantially reverse the trend of increasing the U.S. federal government's fiscal deficit and debt burden in the long term.
"In essence, the U.S. government's move to devalue the dollar indicates its solvency is on the brink of collapse," said the report.
Dagong Global noted the potential overall crisis in the world caused by the U.S. dollar's depreciation would increase the uncertainty of the U.S. recovery and the United States may face much unpredictable risks in solvency in the coming one to two years.
Founded in 1994, Dagong Global is a pioneer in creating credit rating standards on industries, regions and sovereignties in China, and is also leading the credit rating market in corporate bonds, financial bonds and structured financing bonds.
Dagong Global on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the U.S. by one level to A+ from previous AA with "negative" outlook.
The Chinese rating agency said the downgrade reflected the U.S.'s deteriorating debt repayment capability and drastic decline of the U.S. government's intention of debt repayment.
"The serious defects in the U.S. economy will lead to long-term recession and fundamentally lower the national solvency," Dagong said in a report.
The Chinese rating agency said the Federal Reserve's new round of quantitative easing would further depreciate the U.S. dollar and was entirely counter to the interest of the creditors.
The Federal Reserve last week decided to buy 600 billion U.S. dollars of U.S. Treasury securities and other assets held by banks in a bid to inject fresh funds into the economy and bring down long-term interest rates.
"The credit crisis is far from over in the United States and the U.S. economy will be in a long-term recession," Dagong Global warned in the report, adding a weakening greenback will cripple U.S. capability to attract dollar capital reflow.
The Chinese rating agency said the Fed's move would not substantially reverse the trend of increasing the U.S. federal government's fiscal deficit and debt burden in the long term.
"In essence, the U.S. government's move to devalue the dollar indicates its solvency is on the brink of collapse," said the report.
Dagong Global noted the potential overall crisis in the world caused by the U.S. dollar's depreciation would increase the uncertainty of the U.S. recovery and the United States may face much unpredictable risks in solvency in the coming one to two years.
Founded in 1994, Dagong Global is a pioneer in creating credit rating standards on industries, regions and sovereignties in China, and is also leading the credit rating market in corporate bonds, financial bonds and structured financing bonds.
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